Confessions of a Penny Stock Trader

Ed Balch has been trading micro-cap, penny, and pink sheet stocks for several years now. He buys hundreds of thousands of shares at fractions of a penny each, and waits for them to move. It is a type of trading fraught with cautionary tales, which Ed freely admits. The stocks are highly manipulated, yet you can buy many shares at low cost.

In this interview, Ed talks about trading this type of stock and where he gets his information. He also talks about managing risk when trading these volatile issues, and explains things every trader must know before trading a penny stock.

Ed is not associated with any of the penny stocks he trades. This interview is an objective look at a unique type of trading.

Tim Bourquin: Hello everybody, and thanks for joining me for another interview this week. My guest today is Ed Balch, and we're talking to him about trading penny stocks.

We haven't had a lot of interviews about micro-caps and trading those. So I wanted to get Ed on the phone and talk about his strategies for finding good opportunities there. So, first off, Ed, thanks very much for joining me on Skype today.

Ed Balch: Well, Tim, thanks for having me. And actually, I didn't start with micro-caps, I started with the big board stocks.

I was a big computer guy, so my, naturally my first investment was within the tech sector. It was Netscape Communications, one of the first Internet web browser companies, and that carried on into a fascination with micro-cap stocks.

Tim Bourquin: All right. When I first hear about trading micro-caps, you think of lots of manipulation, fake companies out there. I mean it sounds great to trade tiny stocks. I mean I'd love buy something at $0.15 and sell it for $0.50 because I can buy a ton of shares and do that.

But then part of me says, does the technical analysis work? Because there are...some of these things don't have a lot of volume. I mean, do you have to be careful trading these things differently than you do regular stocks?

Ed Balch: You've got to be very careful with micro-caps, and especially the ones that I primarily deal with.

I like to trade within the .00 range, which is a fraction of a penny, so there is an extreme amount of volatility there. But as we know, volatility can lead to impressive profits or very negative gain.

So, it's something that I enjoy the rush that I get. And I, like you said, I can put in a few hundred bucks and get a few million shares, if I'm trading stocks here in the .0001 price per share range.

Now, the one misconception that people new to the penny stock realm have is that they assume that something is cheap just because they can buy a large quantity of shares, and that's not the case. So as far as my due diligence process, obviously the first step are the stock forums. And, as you just mentioned, there is an abundance of manipulation out there.

So, first step of the process is looking at the forums, finding within the forums and social media which stocks are currently buzzing, as we would say. So whatever interest they may have, that could be a positive interest, negative interest, I take that as my first step.

After that, it's looking through those that are talked about, that are currently being talked about very heavily within the forums and looking at the volume. Because as we know, a stock, whether it's a penny stock or a big board stock, without volume there will be no positive or negative movements as far as price per share is concerned.